Question

In 2019, 3 friends (Tom, Rob and Susan) incorporate Rags Pty Ltd to operate a retail fashion shop that only sells latest trendy fashion designs. Tom and Rob each held 45% of issued shares; Susan held remaining 10% of the shares. Company’s constitution stated all 3 were directors, with Tom appointed as MD.

Susan is very critical of Tom’s management but lacks the support of Rob in confronting Tom about his management style. Rob tells Tom about Susan’s dissatisfaction.

To teach Susan a lesson, Tom and Rob decide to incorporate a new company called Ribbons and Rags Pty Ltd in which Tom and Rob are equal shareholders. Ribbons and Rags Pty Ltd trades in the neighbouring suburb and Tom and Rob divide their time between the two businesses which sell similar products.

Susan is unhappy when she hears about these developments but is unsure what she can do. Susan feels that she has been outsmarted by her friends.

Advise Susan whether:

(a) Tom and Rob have breached any directors duties owed to Rags Pty Ltd under the Corporation Act [10 marks]; and

(b) What remedies are available to Rags Pty Ltd [10 marks] and

(c ) Advise ASIC on penalties available under the Corporations Act for breach of duties identified above [10 marks].

TLAW 607 (Topic 10) Members 33 Rights and Remedies

Answer 1

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